How to Handle Debt As A Small Business

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12 Ways to Cope with Debt and Keep Your Business Alive

Be Honest

Get in touch with creditors, customers, and vendors and let them know that you’re in financial distress. This one move could buy you time, or at least make all parties aware as the first step to a sustainable payoff plan. Customers who owe you money might be more likely to pay up and creditors may settle for less each month, so long as they’re guaranteed that you’ll be repaying over time.

Protect Assets

Before taking drastic measures to handle debt, be sure that your business insurance is up-to-date. Depending on how you go about handling this financial crisis, your insurance company could refuse to renew down the road. Making sure that you’re protected for the duration can eliminate one stressor.

Cut Costs

Find the parts of the business that aren’t holding their own and create a plan to reduce costs. If office space isn’t being used or expensive technology systems aren’t necessary anymore consider eliminating them, even if just temporarily. Reduce offerings and streamline services to best suit your business’s bottom line. Sometimes this means reducing staff, but that should be a last resort.

Increase Revenue

This could sound counterintuitive in the current business scene, but a minor increase in service costs to clients could add that little bit of cash you need right now. Selling at a discount to loyal customers is another possibility. Bundling services could allow for an upsell, and reinventing parts of your business to fit into the current market is another option. And an obvious answer is to sell or scrap unused equipment. Diversification and increased marketing efforts could help to bring in new customers.

Collect Debts

If you’re in debt and customers owe you cash, this is a starting point. You don’t want to harass anyone or open yourself to legal action, but being persistent and consistent in your requests might get you the capital you deserve and desperately need. Consider reducing customers’ debt, even slightly, to encourage payment and make sure that communications are documented. If your efforts fall flat you could consider a collections agency or litigation, but these both bring their own complications and costs.

Analyze Your Budget

Create a budget based on your business’s current financial situation. Include monthly and fixed costs, and allow some flexibility for variable expenses. This will give you a true picture of where you are, and where you need to be.

Prioritize Payments

Work on paying down high-interest debt or loans that are personally guaranteed. Payroll taxes are also high-priority and won’t be ‘forgiven.’ Utilities and communications bills and court judgments are other payments that could spell serious trouble if they go unpaid.

Consolidate Loans

Consolidating debt will at least allow you to manage it amid this turbulent financial situation. You’ll still be paying creditors and not harming your business’s reputation or your credit.

Consider Selling

Even in a challenging market, some people are still looking to buy businesses. If they have the assets and skills, they could breathe life back into a failing business. If you’re going to consider selling, make sure you’re still doing all you can to improve the business before handing it over. Minor cosmetic updates, paying down debt, and developing a business plan going forward can show potential buyers that the business still has value and that it can be reinvigorated.

Investigate Bankruptcy

This is a serious step, and the type of business will determine the type of filing. But if there’s no other way to go, bankruptcy is always an option. The process can be complex and drawn out, and we’d recommend seeking the expertise of a bankruptcy lawyer. This could just be a temporary solution that helps you to get your feet back under the business, or it could be permanent.

Liquidate Assets

Creditors will likely get more through liquidation than through bankruptcy, so this might be a negotiating tool.

Shut Down 

No one wants to quit a business they’ve put their heart into, but sometimes it’s better than sinking with the ship. Shutting down in an orderly way can satisfy creditors and wipe clean your financial slate, giving you the opportunity to reinvent your business dreams.

Before you get overwhelmed by the possibilities and what the future holds, get some concrete truths straight. Determine if your business’s debt is manageable with some simple steps, or if it’s far beyond what you can handle. If you can, put growth on hold and just focus on meeting deadlines and holding to agreements. Either way, slow and steady will win this race, so put your head down and move ahead.

Consider Calkins Law

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Benjamin Calkins

Benjamin Calkins

Ben Calkins is a well-educated, top-rated, and highly experienced business law attorney.

Ben Calkins is an honors graduate of Harvard College and the University of Michigan Law School. After law school, he clerked for a Federal Judge before joining one of the World’s largest law firms, Squire, Sanders & Dempsey. Mr. Calkins has also worked at, and been a partner in, several of the most prominent “old style law firms” in the World.